1. Parol evidence is permitted where a contract is procured or induced by fraud.
Under the facts of this case, the rule remains the same even when the contract
contains a provision that no oral representations had been made.

2. Extrinsic evidence of fraud does not contradict or vary the terms of a written
contract. It merely shows that no binding contract was ever made.

3. Evidence which tends to show the circumstances under which a contract was
executed does not violate the parol evidence rule.

ELLIOTT, J.: Miles Excavating, Inc., (Miles) sued Rutledge Backhoe and Septic
Tank Services, Inc., (Rutledge) for breach of contract and fraud or fraud in the
inducement of a release agreement. The trial court granted Rutledge's motion to
dismiss for failure to state a claim and denied Miles' request to file an amended petition.

We reverse and remand.

The petition made the following allegations: Miles and Rutledge agreed to
provide services on a project for Terracon Environmental, Inc., (Terracon) at the
McCormick Distillery. Miles and Rutledge agreed to share profits equally. Upon
completion of the project, Rutledge submitted two notices to Terracon. When Rutledge
received payment on the first invoice, it paid Miles its share of the profits and required
Miles to execute a release acknowledging payment in full. Rutledge did not inform Miles
of the second invoice or that it expected to receive additional monies from the project.

A few days after Miles executed the release, Rutledge received an additional
$185,250 for the project. Not surprisingly, Rutledge refused to pay Miles any portion of
the monies received from the second invoice.

In its motion to dismiss, Rutledge argued that Miles admitted executing the
release which contained the following language: "[T]his Release is not executed in
reliance upon any statement or representation made by the party or parties hereby
released." Miles responded it should be allowed to present evidence of the alleged
fraud and that the parol evidence rule does not exclude that evidence where the
contract was induced by fraud.

Our standard of review is to determine whether the facts pled, viewed in a light
most favorable to plaintiff, state any valid claim for relief. We accept plaintiff's version of
the facts and any reasonable inferences which may be drawn from them, and must
resolve any doubts in plaintiff's favor. Dismissal is proper only if the allegations in the
petition clearly show plaintiff has no claim. Blevins v. Board of Douglas County
Comm'rs, 251 Kan. 374, 381, 834 P.2d 1344 (1992).

In dismissing, the trial court ruled the release covered all claims arising out of the
McCormick Distillery project and also ruled that parol evidence could not be used to
vary the terms of the release agreement. The parties agree that Kansas law applies.

In Stegman v. Professional & Business Men's Life Ins. Co., 173 Kan. 744, 751,
252 P.2d 1074 (1953), the Supreme Court held that parol evidence is permitted where
a contract is procured or induced by fraud, explaining that "[f]raud vitiates whatever it
touches including final judgments and final orders as well as contracts." See also
Griesa v. Thomas, 99 Kan. 335, 339-41, 161 Pac. 670 (1916) (parol evidence rule not
applicable where fraud pled and proved); Hart v. Haynes, 96 Kan. 262, Syl. ¶ 2, 150
Pac. 530 (1915).

The twist in the present case is the clause in the release stating that Miles did
not rely on any representations of Rutledge. No Kansas case has directly addressed
the issue of the effect of such a clause, but "the rule supported generally is that a
provision in a written contract expressly excluding from consideration representations
not included in the written contract does not prevent proof of parol representations
which amount to fraud in the inducement of the contract." 37 Am. Jur. 2d, Fraud &
Deceit § 452; see Annot., 56 A.L.R. 13, 56.

Oak Industries, Inc. v. Foxboro Co., 596 F. Supp. 601 (S.D. Cal. 1984), involved
similar, if not identical, arguments to the ones made in the present case. There, the
court allowed parol evidence to show fraud in the inducement of a contract even where
the contract had a provision that no oral representation had been made. The court
reasoned that extrinsic evidence of fraud does not contradict or vary the terms of the
written contract--it merely shows that no binding contract was ever made. Further, the
parol evidence rule should never be used to shield fraud. 596 F. Supp. at 607-08.

Further, the parol evidence rule is not violated when the evidence tends to show
the relation of the parties and the circumstances under which the contract was
executed. See In re Estate of Goff, 191 Kan. 17, 29, 379 P.2d 225 (1963).

We hold that parol evidence is admissible to show fraud in the inducement of a
contract even where the contract contains a provision stating the parties have not relied
on any representations other than those contained in the writing. Accordingly, the trial
court erred in ruling Miles' petition failed to state a claim.

Because of our holding on the dismissal ruling, we need not address the issue
concerning Miles' request to file an amended petition.